‘A semblance of normality returned to the diamond industry in September and October, only for the world to be knocked back by another brutal onset of the Covid-19 pandemic in Europe. Rough diamond sales started to move once more, as the main producers reported decent sales levels in Q3. Despite the second wave hitting Europe, the diamond market is showing remarkable resilience and agility in how it operates right now. Of course, news of the first vaccine being close to regulatory approval gives enormous hope to the world that there is a strong possibility of an eventual return to life as we once knew it. But, not yet.
Rough and the middle market
De Beers and Alrosa continue to show flexibility and reason in their respective sales policies, allowing deferrals (mainly in smaller goods) and reduced buying levels. Smaller producers have continued selling and are generating cashflows, albeit at slightly lower levels than January. But the cash is flowing, and the market feels somewhat resilient, stable and ready for better times.
De Beers sales for Sight 8 were reported at $467m ($334m for Sight 7), and the just-concluded Sight 9 is estimated, by market insider contacts, to be around $415m.
The trading centres are operating, despite travel restrictions limiting overseas buyers’ ability to move. Smartly, the producers have started to move closer to the clients as we now see increased appetite for sales in Dubai (conveniently closer to India and with direct flights from Surat) and other centres. New alliances are being forged as the industry adapts to the current situation imposed on us all by the pandemic. Whether the industry returns to the previous, traditional structure once life returns to normal remains to be seen. I have my doubts. New efficiencies to the benefit of the pipeline should logically continue.
Parallels can, in some respects, be drawn with the global financial crisis of 2008-9 with regards to trading paralysis. However, the 2009 rebound of the industry pretty much brought it back to a pre-crash modus. This time, the hiatus caused by Covid and the subsequent structural changes may be more permanent.
So – where are we now? Rough is flowing, the major producers have taken a big hit this year, lesser producers forged their own individual tactics driven by a hitherto unseen cocktail of health and safety concerns, operational requirements, cashflow needs and other individual challenges. Some fallout is evident in litigation between certain explorers and their partners, or between producer partners. And yet, it should be stated again – industry resilience is in evidence.
Liquidity and stock levels in the middle market are reported as healthy.
Large stones keep coming, and fancy colours are in the news
The recovery of very large stones continues to be reported. At the time of writing this market report, Lucara just announced the recovery of a whopping 998ct gem (reported as high clivage [medium] quality and white in colour).
Fancy colours continue to make the headlines too.
After being shown in Antwerp and Hong Kong, the Petra blue stones (5 exceptional, large blue rough stones, as reported in my last editorial) are currently on their way to New York for viewings by prospective bidders. Results are due on 24th November.
Rio Tinto’s penultimate Argyle Pinks tender is also in progress. Always outperforming the market due to their unique colour, despite being very small stones, these stones look set to smash all records as the mine has now officially ceased production. Bids close on December 2nd.
The future for prices of pink diamonds looks robust. I think that there is an opportunity here for another producer to take over the mantel as the world’s leading supplier of pinks; perhaps Alrosa of Russia. The exquisite 14.83ct “The Spirit of the Rose”, a fancy vivid purple-pink mined by Alrosa in Yakutia, Russia, sold for $26.6m at a Sotheby’s Geneva auction.As well as the purple-pink, a 28.88ct rectangular step-cut fancy vivid yellow at Christie’s Geneva was sold at auction for $3.1m
Polished and retail
Polished prices in many areas are strengthening (except in melee and +3ct weaker makes) due to decent demand and a genuine shortage of certain goods, and the wholesale markets are busy filling orders for the festive season.
Clearly online sales are in the ascendancy and we can expect this to continue exponentially.
The LVMH acquisition is back on, albeit at a lower price – and the deal should be concluded in early 2021 subject to regulatory and shareholder approvals.
Lab-grown diamond production is being expanded and this remains an appealing market for many players due to the high margins at all stages of the pipeline. The longer-term evolution of the story of lab-grown diamonds remains to be seen. My own personal feeling is that a two-tier parallel market will evolve and settle before cannibalisation starts to take place over time. It may not be a popular view for some.
Conclusion
Macro issues such as global politics, a new US President, international trade tensions and economics will no doubt have their various impacts along the way, but I sense a great opportunity for diamond industry marketeers to re-capture and re-establish the emotional essence and mystique of diamonds in the consumer’s mindset and generate a significant rebound for diamond jewellery purchases/gifting as the pandemic eventually subsides.
As an aside, Bain is preparing its next industry report. It will be interesting to see what they say about where they believe that our industry is going.
Considering that we are still in the middle of such a traumatic global pandemic that has paralysed so much of the world – and let’s be honest, though vaccines may well be coming, we are very far from being out of the woods yet – the diamond industry has shown extraordinary depth of resourcefulness and resilience. When better times return, we should be well placed for greater business success.’
– By Robert Bouquet
Source – Natural Color Diamond Association
